Delhi High Court: Constitutional Court Should Mind the ‘Lakshman Rekha’ Imposed on their Powers While Addressing Challenge to Arbitral Award

Delhi High Court: Constitutional Court Should Mind the ‘Lakshman Rekha’ Imposed on their Powers While Addressing Challenge to Arbitral Award

The Delhi High Court while dealing with a challenge to an Arbitral Award under Section 34 of the Arbitration and Conciliation Act, 1996 observed that it is high time that Constitutional Courts should keep in mind the ‘Lakshman Rekha’ imposed on the powers of the courts while addressing the challenge to the Arbitral Award under Section 34 of the Act.

The Single Judge Justice Chandra Dhari Singh stated this check on the powers of the Constitutional Courts is in light of the legislative mandate of the Arbitration Act.

The Court was adjudicating a petition wherein the petitioner had challenged the impugned Original Award and the Impugned Final Award passed by the Arbitral Tribunal whereby the application filed by the petitioner under Section 33(2) Arbitration Act was dismissed stating that no errors were found in the Award.

The Petitioner further prayed for allowing the counterclaim raised by the petitioner as against the respondent for Rs.4,14,42,192/- towards excess amount charged contrary to the Escalation clause under the agreement with 18% interest thereupon.

The following were the two primary issues raised before the Court:

Firstly, whether the Impugned Award in question dated 30 October, 2019 suffered from patent illegality as well as in conflict with the public policy of India and thus, suffered from infirmities enshrined in Section 34 of the Arbitration Act?

Secondly, whether the Arbitrator appreciated and evaluated the material placed on record and gave the reasons for awarding compensation?

The judge while dealing with the first issue stated that the objective of introducing the Arbitration Act was to expeditiously and effectively dispose of matters and it was deemed necessary by the legislature as well as the Supreme Court to limit interference by the courts in the process of arbitration, whether before, during or after the conclusion of the proceedings.

It was observed that the conclusion of an Arbitrator on facts, even if erroneous in the opinion of the Court could not be interfered with.

“Where the view of the arbitrator is a plausible view and cannot be ruled as one which is impossible to accept, the court should not substitute its own view in place of that of the arbitrator,” observed the Court.

The Court opined that that Section 34 of the Arbitration Act is not in the nature of an appellate provision, and it only provided for setting aside awards on limited grounds, being contained in sub-section (2) and (3) of the Arbitration Act. Further, a ‘recourse’ to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-sections (2) and (3).

To support its reasoning, the Court referred the decision passed by the Supreme Court in the case of MMTC Ltd. vs. Vedanta Ltd. which stated that under Section 34 of the Arbitration Act, the Award could not be challenged on merits.

The Court was of the view that the legislative mandate behind the advent of the Arbitration Act, the Spirit and Scope of Section 34 of the Act and the categorical judicial pronouncements on the ambit of Section 34 of the Act, clearly elucidate that the Constitutional Courts do not possess the unbridled power to interfere unnecessarily with the award. The embargo imposed on Constitutional Courts under the Section 34 of the Act is in tune with the legislative intent of the Act.

The Court affirmed that, “there was limited ground for patent illegality enshrined in the tenets of Section 34 of the Arbitration Act and should be applicable only when the arbitrator construed to the terms of the contract which could not be construed in accordance with the eyes of the reasonable person. The error should be so apparent that it should shock the conscience of the Court.”

However, the Court stated that if the decision which was wholly arbitrary and whimsical would not be termed as fair, reasonable, or objective determination of the questions involved in the case. It was also held that observance of audi alteram partem principle was also a part of the juristic principle which must be followed.

Averting to the present case, the Court opined that the petitioner had neither been able to point out any error apparent on the face of the record, nor otherwise had made out a case for interference with the Award with respect to the issue of patent illegality and public policy.

Thus, the Court came to the conclusion that the Award passed by the Arbitrator, passed the muster of patent illegality and public policy enshrined in Section 34 of the Arbitration Act. Moreover, the Impugned Award was not in conflict with the public policy of India and thus did not suffer from any infirmities enshrined under Section 34 of the Arbitration Act.

Apropos to the second issue, the Court referred to the case of NTPC Ltd. vs. M/s Deconar Services Pvt. Ltd. wherein the Court had observed that for the objector/appellant in order to succeed in their challenge against an arbitral award, must show that the award of the arbitrator suffered from perversity or an error of law or that the arbitrator had otherwise misconducted himself. Merely showing that there was another reasonable interpretation or possible view on the basis of the material on the record was insufficient to allow for interference by the Court.

The judge noted that the Arbitrator had duly appreciated the evidence placed on record and had passed the order after considering the evidence placed by the petitioner regarding the validity of the agreement. Thus, the Award was not devoid of reasoning and thus muster the challenges imposed under Section 34 of the Arbitration Act.

Therefore, the Court while following the catena of judicial pronouncements, the spirit of the Arbitration Act, opined that it was very clear that Arbitration is an alternate dispute resolution process, and the entire ballgame was between the parties and the Arbitrator.

Once the Award is passed by the Arbitral Tribunal, it can only be challenged on the basis of the very limited grounds enshrined under Section 34 of the Act, stated the judge.

Therefore, the Court concluded that the impugned award was not patently illegal and was not in conflict with the public policy of India.